CARTEL BEHAVIOR AND EXHAUSTIBLE
RESOURCE SUPPLY: A CASE STUDY
OF THE WORLD OIL MARKET
(NSF Grant No. DAR 78-19044)
Technical Report No. MIT-EL 82-012
2
PROJECT SUMMARY
The M.I.T. World Oil Project has been developing forecasting methods
that integrate the following considerations which influence investment in
oil capacity and the level of oil exports: (1) the geology and
microeconomics of exploration and production; and (2) macroeconomic and
financial effects of oil investment and export sales. The effort is a
continuation of previous NSF-sponsored research on the world oil market.
Simplified methods of disaggregated analysis of oil exploration and
production are being developed, and a country-level model of oil finance
has been formulated and tested. This research has proceeded sufficiently
well that it appears possible to merge the two into a unified analysis.
This research will contribute to our unde-standin of oil supply
from critical regions of the world; it also should lead to better supply
analysis for inclusion in the oil system models maintained by U.S.
government agencies, university research and non-profit groups, and
private industries.
TABLE OF CONTENTS
Page
1.
2.
Introduction
1.1
Project History
1.2
Recapitulation of Research Objectives
Summary and Review of Work to Date
Task 1
Subtask 1.1
Integration of Supply Models
Subtask 1.2
Improved Data Methods
Task 2
3.
Supply Model Development
Integration of Supply Model and Financial Analysis
Subtask 2.1
Country Macrofinancial Model Development
Subtask 2.2
Linkage of Oil Production and Macrofinancial
Models
Dissemination of Results
Appendices
A.
Publications and Working Papers for the Period of
July 1, 1980 through December 31, 1981.
A-1
B.
Publications and Working Papers for the Period of
March 1, 1975 through December 31, 1981.
B-
C.
List of Meetings, Lectures, Conferences, and
Testimony by Project Personnel for the Period
of July 7, 1980 through December 31, 1981.
C-i
D.
M.I.T. Center for Energy Policy Research Conferences
on the World Oil Market--Meeting Schedules and
Lists of Participants.
D-1
1. INTRODUCTION
1.1
Project History
The World Oil Project is being conducted by the M.I.T. Energy
Laboratory in association with the Sloan School of Management and the
Department of Economics.
Started in the summer of 1973, the project
received support from the National Science Foundation beginning March 1,
The original proposal on "Analysis of the World Oil Market" was
1975.
for a three-year effort, and the initial NSF funding was for eighteen
months:
March 1, 1975 to August 31, 1976 (NSF Grant No. SIA75-00739).
Subsequently, a continuation proposal was approved, providing a budget
for the period September 1, 1976 through February 28, 1978.
NSF support
was received for the period July 1, 1978 through June 30, 1980 under a
project entitled, "Cartel Behavior and Exhaustible Resource Supply:
Case Study of the World Oil Market" (NSF Grant No. DAR78-19044).
A
The
current project is an extension of this latter grant for the period of
July 1, 1980 through June 30, 1982.
Appendix B lists (with abstracts)
the publications and working papers from this NSF-sponsored activity over
the period March 1975 through December 1981.
This current project is to perform further research on world oil
issues.
Much has been accomplished under NSF support for this work; yet
important research remains to be done, both to improve the analytical
apparatus and data resources already developed, and to extend the
analysis to new areas.
The research here concentrates on world oil
supply, and on the development of more adequate methods for forecasting
the decisions of key exporters regarding capacity creation and oil
production and export.
5
The work has been led by two co-principal investigators:
M.A. Adelman--Professor of Economics
Henry D. Jacoby--Professor of Management and Director of the
Program on International Energy Studies, M.I.T.
Energy Laboratory
Over the course of the project several other faculty and M.I.T. staff
have contributed.
Also, students have played a significant role in the
research; during the period covered by this report, approximately six
graduate students either have been employed as research assistants, for
periods ranging from a semester to the duration of the project, or have
written graduate theses on topics associated with the project.
1.2
Recapitulation of Research Objectives
U.S. energy policies are strongly affected by developments in world
oil supply and demand, and by movements in the oil price.
Events in this
market play a dominant role in the consideration of measures to stimulate
domestic supply or encourage conservation, and in discussions of oil and
natural gas price controls, energy taxation, tariffs and quotas, and the
national program of energy R&D and commercialization.
Expected market
structure and supply patterns also impinge on national security and
influence the design and management of crude oil stockpiles, oil sharing
agreements, and emergency demand control measures.
The objective of the M.I.T. World Oil Project is to develop improved
methods and data--and a better understanding of the characteristics of
this market--to aid in the analysis of likely developments over the next
few decades.
The oil market presents a continually developing challenge
to understanding and analysis.
Prices and contractual agreements have
6
undergone radical change in the past few years.
The potential capacity
for oil production in key areas of the world, and the motivation of
governments to produce it, is a matter of considerable uncertainty and
dispute. In the future, additional shocks to the system are likely.
From the outset, the Project has been designed to develop models,
supporting data bases, and related analysis to assist policy makers and
the public as they make decisions in this area.
Examples of the types of
analysis our work is intended to support include:
*
Analysis of the future level and structure of world demand for
energy in general, and for oil in particular.
*
Analysis of the supply of oil, taking account of geologic
potential, cost and problems of access, and government policy.
*
Study of the likely future course of the world oil price.
*
Research on the effect of oil investment and export decisions
on the macroeconomics and finance of producer countries, and of
the likely implications for oil capacity creation and total
production and export.
*
Study of market structure and trade patterns in oil, and the
associated implications for national security, international
relations, and the oil revenues and foreign balances of key
producer states.
*
Analysis of international financial and economic growth
problems that may be created by changes in oil price and volume.
The intent has been that the models, data, and associated studies
developed by the Project be incorporated into the work of government
agencies and private groups who are concerned with this market.
In
addition to the publications and working papers disseminated, methods for
achieving this result are discussed in Section 3 below.
7
2. SUMMARY AND REVIEW OF WORK TO DATE
During the course of this grant we have performed research on a
variety of related tasks as outlined in our proposal, and as amended by
our letter of May 8, 1980.
Task 1
These tasks are:
Supply Model Development
Subtask 1.1
Integration of Supply Models
Subtask 1.2
Improved Data Methods
Task 2
Integration of Supply Model and Financial Analysis
Subtask 2.1
Country Macrofinancial Model Development
Subtask 2.2
Linkage of Oil Production and Macrofinancial
Models
This section describes the results achieved under each task.
effort through December 1981 has been in Subtask 1.1.
Most of the
The text includes
citations to the publications and working papers produced during the
period of this grant; they are listed in Appendix A.
Task 1 Supply Model Development
Subtask 1.1
Integration of Supply Models
This task involves the linking together of "exploration-discovery"
and "production" models into an integrated framework of supply analysis.
This development will be a major step beyond the present production model
[11],* which presumes homogeneity of costs in any producing region--both
across fields and through time. Based on the recent work on field
disaggregation, we believe the present production model can be extended
to incorporate development cost relationships which are sensitive to the
scale of the production unit.
The revised model will include additional
*Numbers in brackets refer to project publications and working papers
which are listed, with abstracts, in Appendix A.
parameters which measure this sensitivity. Estimated values of the model
parameters can be obtained from cross-sectional analysis of differences
in unit costs among regions of varying deposit size.
Many of these data
are currently in hand, though some new work is needed, as discussed in
Subtask 1.2.
A second addition which the "discovery" model will bring to our
current oil supply analysis is the explicit drawdown of "proved" reserves
from the estimated inventory of "ultimate" reserves.
Our present
production model subsumes much exploration and discovery activity, and
all development, into an aggregate variable which is solely a function of
drilling.
However, the disaggregated analysis of "discovery" described
above will permit specification of likely sequential distribution of
field discoveries over time, by size, as a function of exploratory
drilling and investment.
From these discovered reserves, our current
production model can be used to simulate the process by which proved
reserves and production capacity are built up and drawn down.
Adapting these two models to work together will require considerable
research and analysis.
The steps in the process include the following:
(1) The output of the new, simplified discovery model is a sequence
of mean field sizes as a function of exploratory drilling
effort.
For each increment of exploratory effort, however,
these means really summarize an underlying distribution of
respective field sizes.
Moreover, these distributions change
systematically as exploratory effort proceeds, conditional on
previous discoveries.
We will test alternative methods for
approximating the partial expectations of discovery size, given
an underlying analysis based on the means of size.
9
(2) Simulated mean discoveries (conditional on preceding finds) can
be fed into the production model inventory for present or
future development.
Obviously, different simulated discovery
sequences will have different implications for development
effort, particularly for the price-taker.
In turn, development
efforts and the effect on the developable inventory must feed
back into the exploration effort embodied in the discovery
model.
The principle (for price-takers) is very simple:
equate cost at the intensive margin (development) and the
extensive margin (discovery).
But the simulated discovery
sequence and feedback loops are complex relationships, and an
algorithm must be developed to coordinate them.
(3) The production model itself must be adapted to work with proved
reserves, by reservoir size.
The details of the calculations
must be coordinated with the efforts to develop better data on
capacity, and capacity cost by reservoir size (see Subtask 1.2).
(4) Provision must be rmade to keep account of both production
drilling efforts and drilling effort involved in the
exploratory process.
These two inputs are close but not
complete substitutes.
(5) The investment cost data generated in the analysis must provide
the needed inputs on oil sector investment for purposes of the
macrofinancial analysis (see Task 2).
(6) The completed model must be calibrated and tested for two or
three sample countries.
The fully integrated supply framework should significantly enhance
the usefulness of present models, because the response of future supplies
to fluctuations in economic variables (e.g., expected prices and costs)
will be treated explicitly, and the dynamic influence of resource
depletion will be taken into account as the supply projections are
extended into the future.
Also, the new framework will give improved
estimates of investment requirements, and their distribution over time,
for financial analysis.
Most of Step (1) and part of Step (2) have been completed and are in
a draft working paper entitled "Regional Modeling of Oil Supply" by James
L. Smith.
Parts of Steps (2), (3) and (4) have also been completed and
are in a draft working paper entitled "Investment Theory and the
Development of Exhaustible Resources" by James L. Paddock.
Steps (3),
Parts of
(4) and (5) are related to work under Subtask 1.2 as discussed
below.
Two working papers were proposed under this subtask and both are in
process as described above.
Subtask 1.2
Improved Data Methods
The main focus of this subtask is the development of concepts and
methods which will allow more accurate analysis and measurement of
capacity, drilling and costs.
Based on this development, a very limited
estimation of parameters would be undertaken.
The purpose is to support
the combined "exploration-production" framework described under Subtask
1.1 above.
Two working papers report the progress of this work.
World Oil Model:
"The M.I.T.
Documentation and Use" by J. Carson, W. Christian and
G. Ward [13] presents a summary of the concepts and methods used in the
World Oil Models. "The Aggregate Supply Model:
Documentation and Use"
11
by G. Ward [15] presents a detailed discussion of the supply model
methodology, data update and parameter estimation.
The data work and
empirical estimation in this paper was funded by the U.S. Department of
Energy under a separate contract No. EX-76-A-01-2295 since our NSF grant
did not provide for actual empirical work.
The results of this work will
then be used in the model integration development work discussed above in
Subtask 1.1.
Finally, to aid in completing the data analytic portions of Steps
(2),
(3),
(4) and (5) in Subtask 1.1 another separate contract, No.
EX-76-A-01-2295, as extended, has been written jointly with the U.S.
Department of Energy and the U.S. Geological Survey.
This work is
performing empirical estimations of cost and capacity parameters.
These improved data methods, and the updated empirical estimates,
have been incorporated into the M.I.T. world oil simulation model, and
have formed the basis for a series of presentations and papers by Jacoby
and Paddock [3, 9, 14].
The updated supply model, with its interlinked
set of analyses of demand and OPEC behavior, is used to define a universe
of possible combinations of oil price and world economic conditions over
the decade of the 1980s.
The resulting "window" of not-unlikely oil
prices is quite wide, stretching from $30 to $45 per barrel in 1990 (in
1980 prices), with a most likely value in the range $32 to $35 per barrel.
One working paper was proposed under this subtask.
One publication
and three working papers have been completed, as described above.
Task 2 Integration of Supply Model and Financial Analysis
Subtask 2.1
Country Macrofinancial Model Development
The main purpose of this task is to modify our existing country
12
financial model for linkage with the oil production model.
The present
structure of the financial model reflects well the general macro
relationships in an oil-exporter's economy. The primary focus of this
structure is the finance sector, including both domestic and foreign
aspects. There are equations describing the money base and domestic
credit supply, central bank activities, government budget financing, and
international capital accounts. However, the flow of funds into and out
of the oil sector are subsumed in the current level of aggregation, as is
the effect of that sector on real output. Yet these are crucial elements
of these countries' economies, and must be modeled explicitly to become
subject to analysis.
As yet we have formulated only our approach to performing this
work. Further work will follow the completion of Step (5) in Subtask 1.1
above.
Two working papers were proposed under this subtask and one is
currently in process.
Subtask 2.2 Linkage of Oil production and Macrofinancial Models
The focus of this subtask is to develop initial approximations to a
linkage mechanism for the two models described above in Subtasks 1.1 and
2.1.
We have produced one working paper bearing on this subject. It is
entitled "Financing Petroleum Development in Developing Countries" by T.
Agmon, D. Lessard and.J. Paddock [121.
Other portions of the work,
however, await the completion of Subtasks 1.1, 1.2 and 2.1 above.
Two working papers were proposed under this subtask and one has been
completed as described above.
13
3.
DISSEMINATION OF RESULTS
We have been involved in various activities that were included in
the utilization plan of our proposal.
The publication of research
results during the period of the current grant is shown in the two
sections of Appendix A; these two sections are entitled "Publications"
and "Working Papers" respectively. Appendix B presents all of the
publications and working papers resulting from this NSF project since its
inception in March 1975.
Appendix C presents a list of meetings,
testimony, speeches, and presentations by members of the Project over the
period July 1980 through December 1981.
In addition, the MIT Center for Energy Policy Research sponsored two
meetings on the world oil situation in November 1980 and May 1981.
The
substantive basis of data and analysis, and the organization and
leadership of these conferences were provided by Adelman, Jacoby, and
Paddock along with assistance from Project staff and students.
All costs
associated with the Conferences themselves were paid by the MIT Center
for Energy Policy Research, a privately-funded entity of the M.I.T.
Energy Laboratory.
These meetings have provided us with extensive
contact with a set of outside experts; and therefore we have substituted
these activities for the Advisory Committee anticipated in the proposed
Organization and Management Plan.
40 to 80 people.
These meetings have involved groups of
Most of the organizations associated with the Center
for Energy Policy Research have participated; this group includes many
U.S. and foreign industries, several natural gas and electric utilities,
several public interest organizations, a U.S. labor union, and several
agencies of foreign governments.
In addition, the meetings have included
representatives of the U.S. Departments of Energy, Treasury, and State;
14
the Council of Economic Advisers and the President's Inflation Adviser;
the Office of Management and Budget; staff directors of Senate and House
committees; officials from the Federal Reserve Bank and the International
Monetary Fund; representatives from the banking and investment community;
and scholars from other universities.
Appendix D contains the schedules
of these meetings and lists of the participants for these conferences.
--
--
m
mmImmII
A-1
APPENDIX A
Cartel Behavior and Exhaustible Resource Supply:
A Case Study of the World Oil Market
NSF Grant No. DAR78-19044
Publications and Working Papers for the Period
July 1980 through December 1981
PUBLICATIONS
i.
Adelman, M.A., "The Clumsy Cartel", in Energy Journal, Vol. 1, No.
1. January 1980. Originally distributed as Working Paper MIT-EL
79-036WP.
The price explosions in the world oil market result from the
tardy recognition of the post-1973 consumption slowdown. Such
odd results could not happen in a competitive market, but they
are not at all strange in the world cartel. Despite stagnant
demand and forecasts that it will continue to grow at present
rates, OPEC has raised the price toward the optimal, and cut back
expansion plans. The cartel is becoming clumsy, however, in its
attempt to control the market. Formerly, they set the price, and
allocation of output was left to the oil companies. Today, main
producing countries set production themselves, independent of
consumer demand by type and location. This results in large
discrepancies, triggers speculation, and subsequently exaggerates
resulting price movements. The Saudis and their neighbors are
fine-tuning a cartel with coarse instruments. Supply has to be
kept tight despite panic, hoarding, and spot price gyrations,
because the controllers fear to lose control. They will avoid
the dangerous surplus of supply and so will keep prices under
pressure.
2.
Adelman, M.A., "Oil in the Eighties", Petroleum Economist, October,
1980.
Demand will continue weak throughout. The OPEC countries will
have considerable difficulty in deepening their cohesion, but the
odds favor them.
A-2
3.
Adelman, M.A., "Energy Markets in the 1980's with Special Attenion
to Oil and How to Cope with Them: The Price of Energy with Special
Attention to Oil, Ciclo De Conferencieas Sobre Economia, Energeticos
Y Desarollo-Compendio, Three Lectures, Institute Mexicano del.
Petroleo, Mexico, D.E., October 28-30, 1980.
A series of discussions on the world oil m'arket issues of the
1980s. The focus is on the prospects for the price of oil.
Suggestion are made for how various market participants should
cope with these issues.
4.
Adelman, M.A., "The Realities of the Energy Market, an Agenda for
the 1980's: Decisions and Research" in International Energy
Options: Agenda for 1980's, ed. Paul Tempest, Uelgeschlager, Gunne
Hain Inc., Cambridge, MA, 1980.
The higher energy prices of 1973 and of 1979 act like a glacial
drift--imperceptible in the short run and irresistible in the
long run--because they require long temr investment, which
incidentally is a drag on productivity and economic growth.
Relative to national incomes, energy consumption will keep
declining for many years.
Econometric supply analysis has, unlike demand, been
unsuccessful. We have been unable to model the
geological-investment interactions. And monopolized markets are
intricate and even perverse. High prices and revenues support
ever-higher prices.
Economic research is much needed, and "I would trade all the
prognostications about the next century for a little
understanding of this decade."
5.
Adelman, M.A., "Testimony Before U.S. Senate Committee on Banking,
Housing and Urban Affiars", mimeograph, January 1981.
The world oil market is one big pool, and special deals and
special relationships are a harmful illusion. Prices may
continue to trend upward, but they will be unstable in any case.
Security will continue as a very serious problem, and only a
stockpile can mitigate it.
-
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A-3
6.
Adelman, M.A. and G. Ward, "Estimation of Worldwide Production Costs
for Oil and Gas", in J. Moroney (ed.), Advances in the Economics of
Energy and Resources, Vol. III, J.A.I. Press, 1980. Originally
distributed as Working Paper MIT-EL 79-058WP.
This paper presents a methodology for estimating drilling and
equipping costs of onshore and offshore wells using only the
usual data available on such activities: rig time spent drilling
and wells completed. The predominant technique used in
estimating the various relationships was regression analysis,
using less specific published articles and reports as checks.
A method of incorporating non-drilling production costs such as
overhead is also proposed. Finally the cost estimates are
applied to obtain dollar requirements per daily barrel of
production capacity for major oil producing areas.. Appendices
included are: special problems associated with estimating
offshore platform and pipeline costs; an examination of recent
claims about Saudi Arabian production costs; North Sea production
costs calculated using unusually detailed plublished information,
and a rough check comparing our calculated production outlays
with reported outlays.
7.
Jacoby, H.D. and J.L. Paddock, "Supply Instability and Oil Market
Behavior", in Energy Systems and Policy, Vol. 3, No. 4 (Winter
1980), pp. 401-423. Originally distributed as Working Paper
MIT-EL-79-033WP.
This paper analyzes the supply disruption in world oil markets in
the winter of 1978-1979. The causes of the resultant price rise
are explored in the context of spot market behavior and cartel
core behavior. In particular, the economic and political roles
of excess supply in the Persian Gulf nations are discussed, and
conclusions for the likely future are presented. Finally, the
implications of these conclusions for U.S. policy are discussed.
- r
A-4
8.
Jacoby, H.D. and J.L. Paddock, "Combining Analytical Models and
Judgment in Oil Price Forecasts," Proceedings of the American
Statistical Association, (Business and Economics Statistics
Section), American Statistical Association, Washington, D.C., 1981.
A set of interlinked models of world oil supply, demand and
market behavior is used to develop an analysis of future oil
prices. In exercises of this type, results often involve
single-line forecasts of price, perhaps with some range of values
calculated with the use of alternative values of key parameters.
In the case of the oil market, however, the uncertainty is so
great that analytical models need to be used in a way that allows
easy input of expert judgment and that fully reflects the range
of possible outcomes.
This technique used here is to define a universe of possible
combinations of oil price and world economic conditions over the
decade of the 1980s, and then to use analytical models and
judgment to define the set of points, G, th~at can be shown to oe
"unlikely" to occur. The complement of this set, G', then
defines a "window" of oil price and growth patterns which are
"not-unlikely," and this result is offered as a way of stating
the existing level of knowledge, and ignorance, about likely
future developments in oil markets.
9.
Paddock, J.L., "World Oil Markets: MIT World Oil Project Outlook
for the 1980s, " in Proceedings of the American Institute of
Chemical Engineers National Meetings: 1980, AIChE, New York, 1980.
Various analytic approaches for forecasting world oil prices and
economic growth yield "reference" or point estimates. This paper
points out the futility of point forecasts due to the great
uncertainties involved in exercises of this type. THE MIT World
Oil Project Models are simulated to show the wide range of
possible and consistent outcomes.
A-5
10.
Smith, J.L. and G.L. Ward, "Maximum Likelihood Estimates of the Size
Distribution of North Sea Oil Deposits", Proceedings of the American
Statistical Association, August 1980, and forthcoming in Journal of
the International Association of Mathematical Geologists, 1982.
Estimates of the ultimate resource potential of the North Sea
petroleum province are derived from a probabilistic model of the
discovery phenomenon. The discovery of individual deposits is
treated as sampling without replacement from a target population
(the underlying resource base), and with individual discovery
probabilities defined in terms of deposit size. Conditional on
the underlying resource base, the model specifies the likelihood
of all possible sequences of discoveries. Conversely, upon
observing a particular discovery sequence, it is possible to
identify the underlying resource base that maximizes the
likelihood of this event. The present paper examines the
sensitivity of such resource estimates to the postulated form of
the size distribution of deposts, and to the presumed degree of
randomness inherent in the discovery process.
A-6
WORKING PAPERS
11.
Adelman, M.A. and J.L. Paddock, "An Aggregate Model of Petroleum
Production Capacity and Supply Forecasting", MIT-EL 79-005WP,
Revised July 1980.
This paper presents a complete discussion and documentation of
the M.I.T. World Oil Project Aggregate Supply Model. First, the
theoretical development and methodology are presented. The
relationships between geologic and economic characteristics are
analyzed and a system of equations representing the inertial
rocess model are discussed. Next, the construction of the data
ase is described and the data, by country segment, is presented
in detail. Methods of bridging the many gaps in the data are
discussed. Finally, the simulation forecasts of the model are
presented through 1990.
12.
Agmon, T., D.R. Lessard and J.L. Paddock, "Financing Petroleum
Development in Developing Countries", MIT-EL 81-059WP, September
1981.
The importance of international finance in energy investment by
developing countries is clear. Financing may be the dominant
factor determining that investment when enterprises or
governments are constrained in their financing options, and hence
are unable to fully shift risks or match income and expenditure
streams.
This paper explores one important situation where financing
constraints are likely to be binding--that of oil field
development by capital-poor developing countries. Our primary
analytic focus is those countries which, through foreign
borrowing, have the potential to become significant net
oil-exporters and for which oil represents a significant portion
of their national wealth. We suggest financial instruments and
policy interventions that may relax these constraints.
A-7
13.
Carson, J., W. Christian, and G. Ward, "The MIT World Oil Model:
Documentation and Use", MIT-EL 81-027WP, December 1981.
Description of the three separate models used by the World Oil
Project. The demand model forecasts energy demand in the OECD
countries and aggregates petroleum product demand with crude oil
demands from the rest of the world, excluding planned economies.
The supply model forecasts possible production scenarios for oil
producers throughout the world. The integration model integrates
demand and supply forecasts and allocates actual production to
producers.
The paper reviews the estimation methodology and database used in
constructing the models. The equations are described and the
behavior summarized. Policy use of the model is described and
limitations of the models are identified. Sample output is
presented and the use of the simulation framework is described.
14.
Jacoby, H.D. and J.L. Paddock, "World Oil Prices and Economic Growth
in the 1980s", Working Paper MIT-EL-81-OGOWP, December 1981.
A set of interlinked models of world oil supply demand and market
behavior is used to develop an analysis of future world oil
prices and economic growth. In exercises of this type, results
often involve single-line forecasts of price perhaps with some
range of values calculated using alternative values of key
parameters. In the case of the oil market, however, the
uncertainty is so great than analytical models need to be applied
in a way that allows easy input of expert judgment and that fully
reflects the range of possible outcomes.
The technique used here is to define a universe of possible
combinations of oil price and world economic conditions over the
decade of the 1980s, and then to use analytical models and
judgment to define the set of points, G, than can be shown to be
unlikely to occur. The complement of this set, G', then defines
a "window" of oil price and growth patterns which are
not-unlikely. This result is offered as a way of stating the
existing level of knowledge, and ignorance, about likely future
developments in world oil markets.
A-8
15.
Ward, G.L., "The Aggregate Supply Model: Documentation and Use,"
M.I.T. Energy Laboratory, Working Paper No. MIT-EL 81-038WP, June
1981.
This paper provides documentation of the Aggregate Supply Model,
a computer-based model designed to forecast oil production
capacity by producing region. The model is an inertial-process
type model based on a few simplifying assumptions. These
assumptions, plus key terms important for understanding the
model, are described in this paper. Data requirements are
identified and an example of results from a model simulation is
presented. In addition, a technical description of both the
model and the data is presented, along with a description of the
computer code that implements the model.
B-I
APPENDIX B
Cartel Behavior and Exhaustible Resource Supply:
A Case Study of the World Oil Market
NSF Grant No. DAR78-19044
Publications and Working Papers for the Period
March 1975 through December 1981
PUBLICATIONS
i. Adelman, M.A., "Constraints o'n the World Oil Monopoly Price,"
Resources and Energy, September 1978. A summary appears in Petroleum
Economist, September 1977. Originally released as Working Paper
MIT-EL 77-038WP, "Producers, Consumers, and Multinationals: Problems
in Analyzing a Non-Competitive Market."
The consuming nations have the power to damage or wreck the
world oil monopoly, but prefer cooperation because of their
fixed belief that otherwise the market will fail to clear and
generate a "gap." Yet they may use the power inadvertently.
The monopoly acts essentially as a loose cartel, with a safety
net: a large seller (Saudi Arabia) would, if need be, act as
the restrictor of last resort. But this would maximize Saudi
profits at a much lower price, penalizing the other sellers.
The conflict can be held off by ad hoc agreements while raising
the price. But the risk of conflict and highly uncertain long
run demand and supply make it likely that the cartel will only
slowly and gradually approach profit- or wealth-maximization.
"Political objectives" coincide with economic objectives and can
be neglected.
2. Adelman, M.A., "World Supply and Demand", presented to the Canadian
Society of Petroleum Geologists in Calgary, to be published by the
CSPG in a Volume of 50th Anniversary Proceedings (forthcoming).
The energy "gap" or "shortage" is logical nonsense. An oil
"price break" upwards is possible, but unlikely. There is an
interrelated system of demand; supply potential; monopoly
control by the OPEC nations; effects of crude oil price changes
on the world economy and on consumer-nations policies.
Some preliminary results of the M.I.T. World Oil Project are
summarized:
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(1) slow consumption growth because of lower income growth, the
delayed effects of higher prices in 1973-74, and future
increases;
(2) complex effects on supply of higher oil prices which,
depending on government action, may increase or decrease
investment and capacity;
(3) excess capcity and also higher prices through the 1980's,
unless the monopoly is destroyed;
(4) great uncertainty must itself be factored into the policies
of business and government.
3. Adelman, M.A., "Energy-Income Coefficients: Their Use and Abuse," in
Energy Economics, January 1980. Originally distributed as Working
Paper MIT-EL 79-024WP.
The right way to estimate and forecast energy demand is to break
consumption into rational subgroups, each analyzed to separate
out effects of income, price, technology, etc. Two widely
quoted relations between aggregate energy consumption and
national income are used as a check on such an estimate: the
average energy-income coefficient and the incremental
energy-income coefficient. The averge coefficient is a valid if
imprecise measure, but the incremental coefficient should not be
used at all; it mixes up four elements. These four are: the
consumption-income relationship, the consumption-price
relationship, the time needed to adjust to price change, and the
rate of economic growth.
4. Adelman, M.A., "The Clumsy Cartel", in Energy Journal, Vol. i, No. 1,
January 1980. Originally distributed as Working Paper MIT-EL
79-036WP.
The price explosions in the world oil market result from the
tardy recognition of the post-1973 consumption slowdown. Such
odd results could not happen in a competitive market, but they
are not at all strange in the world cartel. Despite stagnant
demand and forecasts that it will continue to grow at present
rates, OPEC has raised the price toward the optimal, and cut
back expansion plans. The cartel is becoming clumsy, however,
in its attempt to control the market. Formerly, they set the
price, and allocation of output was left to the oil companies.
Today, main producing countries set production themselves,
independent of consumer demand by type and location. This
results in large discrepancies, triggers speculation, and
subsequently exaggerates resulting price movements. The Saudis
and their neighbors are fine-tuning a cartel with coarse
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instruments. Supply has to be kept tight despite panic,
hoarding, and spot price gyrations, because the controllers fear
to lose control. They will avoid the dangerous surplus of
supply and so will keep prices under pressure.
5. Adelman, M.A., "Oil in the Eighties", Petroleum Economist, October,
1980.
Demand will continue weak throughout. The OPEC countries will
have considerable difficulty in deepening their cohesion, but
the odds favor them.
6. Adelman, M.A., "Energy Markets in the 1980's with Special Attenion to
Oil and How to Cope with Them: The Price of Energy with Special
Attention to Oil, Ciclo De Conferencieas Sobre Economia, Energeticos
Y Desarollo-Compendio, Three Lectures, Institute Mexicano del
Petroleo, Mexico, D.E., October 28-30, 1980.
A series of discussions on the world oil market issues of the
1980s.- The focus is on the prospects for the price of oil.
Suggestion are made for how various market participants should
cope with these issues.
7. Adelman, M.A., "The Realities of the Energy Market, an Agenda for the
1980's: Decisions and Research", in International Energy Options:
Agenda for 1980's, ed. Paul Tempest, Celgeschlager, Gunne Haine Inc.,
Cambridge, 'MA, 1980.
The higher energy prices of 1973 and of 1979 act like a glacial
drift--imperceptible in the short run and irresistible in the
long run--because they require long temr investment, which
incidentally is a drag on productivity and economic growth.
Relative to national incomes, energy consumption will keep
declining for many years.
Econometric supply analysis has, unlike demand, been
uncsuccessful. We have been unable to model the
geological-investment interactions. And monopolized markets are
intricate and even perverse. High prices and revenues support
ever-higher prices.
Economic reasearch is much needed, and "I would trade all the
prognostications about the next century for a little
understanding of this decade."
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8. Adelman, M.A., "Testimony Before U.S. Senate Committee on Banking,
Housing and Urban Affiars", mimeograph, January 1981.
The world oil market is one big pool, and special deals and
special relationships are a harmful illusion. Prices may
continue to trend upward, but they will be unstable in any
case. Security will continue as a very serious problem, and
only a stockpile can mitigate it.
9. Adelman, M.A., and H.D. Jacoby, "Alternative Methods of Oil Supply
Forecasting", in R.S. Pindyck (ed.), Advances in the Economics of
Energy and Resources, Vol. II, J.A.I. Press, 1979. Originally
distributed as Working Paper MIT-EL 77-023WP.
Analysis of likely developments in the world oil market is
tiltimately dependent on some method of forecasting oil supply
from key regions. Unfortunately, data problems tend to dominate
work in this area, and much of the analysis task reduces to
making the best use of the limited information that is
available. Here we report on two alternative approaches to this
forecasting problem, both avowedly data-oriented.
Petroleum exporters need to be grouped into two rough
categories. First, there are what we call price-taker
suppliers. Second, there is the "cartel core" -- a small group
of nations who are the price-makers. Their groupings are not
hard and fast; indeed an exporter would change from one to
another camp.
In this paper our focus is on the price-takers. Our analysis
seeks an understanding of the fundamental market forces, and to
provide estimates of supply functions for price-taker suppliers
and demand functions for importers. These functions are to be
incorporated into a simulation model of overall market
performance.
10. Adelman, M.A. and G. Ward, "Estimation of Worldwide, Producton Costs
for Oil and Gas", in J. Moroney (ed.), Advances in the Economics of
Energy and Resources, Vol. III, J.A.I. Press, 1980. Originally
distributed as Working Paper MIT-EL 79-058WP.
This paper presents a methodology for estimating drilling and
equipping costs of onshore and offshore wells using only the
usual data available on such activities: rig time spent drilling
and wells completed. The predominant technique used in
estimating the various relationships was regression analysis,
using less specific published articles and reports as checks.
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A method of incorporating non-drilling production costs such as
overhead is also proposed. Finally the cost estimates are
applied to obtain dollar requirements per daily barrel of
production capacity for major oil producing areas. Appendices
included are: special problems associated with estimating
offshore platform and pipeline costs; an examination of recent
claims about Saudi Arabian production costs; North Sea
production costs calculated using unusually detailed published
information, and a rough check comparing our calculated
production outlays with reported outlays.
11. Agmon, T., D.R. Lessard, and J.L. Paddock, "Financial Markets and the
Adjustment to Higher Oil Prices", in R.S. Pindyck (ed.), Advances in
the Economics of Energy and Resources, Vol. I, J.A.I. Press,
Greenwich, Conn., 1979. Originally distributed as Working Paper
MIT-EL 77-039WP.
This paper explores the linkages between the world energy and
financial markets. The role of international financial markets
in the adjustment of the real markets for energy is analyzed
from both a conceptual and empirical viewpoint. Financial
intermediation is found to be an important accommodation
mechanism in the market-clearing behavior of price and
quantity. Finally we look at the portfolio aspects of
producers' "surplus funds," and the implications of stress for
world financial markets.
12. Agmon, T., D.R. Lessard and J.L. Paddock, "Financing Petroleum
Development in Developing Countries", MIT-EL 81-059WP, September 1981.
The importance of international finance in energy investment by
developing countries is clear. Financing may be the dominant
factor determlining that investment when enterprises or
governments are constrained in their financing options, and
hence are unable to fully shift risks or match income and
expenditure streams.
This paper explores one important situation where financing
constraints are likely to be binding--that of oil field
development by capital-poor developing countries. Our primary
analytic focus is those countries which, through foreign
borrowing, have the potential to become significant net
oil-exporters and for which oil represents a significant portion
of their national wealth. We suggest financial instruments and
policy interventions that may relax these constraints.
.
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13. Cremer, J. and M.L. Weitzman, "OPEC and the Monopoly Price of World
Oil", European Economic Review, Vol. 8, 1976, pp. 155-164.
Originally distributed as Working Paper MIT-EL 76-015WP.
This paper presents a dynamic model of the behavior of OPEC
viewed as monopolist sharing the world oil market with a
competitive sector. The main conclusion is that the recent
increase in the price of oil was a once-and-for-all phenomenon
due to the formation of the cartel. The model form used here
indicates that real oil prices should remain approximately
constant over the next twenty years.
14. Dailami, M. "Inflation, Dollar Depreciation, and OPEC's Purchasing
Power", The Journal of Energy and Development, Spring 1979.
The objective of this paper is to provide some empirical
analysis of the impact of the dollar's fluctuation on OPEC's
terms of trade over the perioa 1971-1977, and to assess to what
extent the decline in OPEC's terms of trade, after the fourfold
oil price increase of late 1973, can be attributed to the
falling value of the dollar and to what extent to the high rates
of inflation prevailing in the industrial countries. The study
is divided: a theoretical analysis of OPEC's terms of trade
(the model), the empirical results, and a brief summary with
some significant conclusions.
15. Dailami, M. "Financial Influences on the Behavior of Oil Exporters",
forthcoming Fall 1980 in Papers and Proceedings of the IAEE/RFF
Conference on International Energy Issues: June 1979. Originally
distributed as Working Paper MIT-EL 78-035WP.
This paper discusses the influence of financial considerations
on the oil production policies of oil-producing countries.
Other factors include technology, politics, and conservation.
This study, therefore, should be viewed as only a partial
analysis of oil supply determination. However, it has become
increasingly clear that the decisions of the oil-producing
countries may be more heavily influenced by short-run financial
considerations, such as their need for foreign financing, and
their apprehension of the impact of changes in oil revenues on
their domestic economies.
After discussing these issues, this paper presents a
macrofinancial model of Venezuela. This is a short-run
simulation model with econometrically-estimated parameters. The
model's structure captures the financial elements described
above. The output of the simulation runs show the effects on
balance of payments, foreign borrowing, oil production and
revenues, and GNP of various exogenously-specified scenarios.
Although this model is for Venezuela, it is essentially an
open-economy Keynesian7type model which can be applied to other
countries.
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16. Eckbo, P.L., "A Basin Development Model of Oil Supply", in R.S.
Pindyck, (ed.) Advances in the Economics of Energy and Resources,
Vol. II, J.A.I. Press, Greenwich, Conn., 1979.
The paper describes a procedure for estimating the supply
potential of a region given an exogenously specified time
profile for exploratory drilling. The procedure involves
analysis of exploration, development, and production of
reservoirs. The Basin Development Model relies on a
deterministic discovery decline relationship to generate an
expected discovery sequence. This discovery decline
relationship serves as a first approximation to the joint
analysis of the exploration for plays and reservoirs inside a
play. The reservoirs found enter into a reservoir model which
takes account of costs and expected future prices, and allows
detailed consideration of the tax regime. By separating
exploration and finding activities from development and
production activities, the Basin Development Model allows
consideration of the two major aspects of resource depletion,
the depletion of producible reservoirs from the population of
reservoirs to be found, and the depletion of recoverable
reserves from the existing population of producible reservoirs.
The price elasticity of the level of ultimate recoverable
reserves falls out of the interaction between the exploration
and reservoir analysis as demonstrated in the paper.
17. Eckbo, P.L., "Planning and Regulation in the North Sea", Northern
Offshore, No. 9, September 1976.
This article discusses the impact on North Sea exploration,
production, and reserve levels of Norwegian Government
block-allocation and tax policies.
18. Eckbo, P.L., The Future of World Oil, Ballinger Publishing Company,
1976. Originally distributed as Working Paper MIT-EL-017WP.
This paper describes a behavioral model of the international
petroleum market and presents the results from it. The purpose
of the study is to develop a framework for analysis of the
implications of non-competitive behavior in the international
petroleum market. The focus is on the market strategies that
may be pursued by the world's oil exporters on a joint or an
individual basis. The structure of the model is designed to
combine features of formal modeling and of informal
"story-telling" in a consistent framework. Such a structure
requires a simulation type model.
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The "stories" that are being told are constructed from cartel
theory, from the empirical evidence on previous commodity
cartels and from the special characteristics of the individual
oil exporters. The model is evolutionary in the sense that each
exporter is assumed to behave according to a set of decision
rules which may reflect a competitive market structure, a
monopolistic market structure or any combination of the two.
Changes in the decisions rules being applied provides for the
evolution of the market price. An attempt has been made to
combine formal competitive and monopoly models with those of the
informal story-telling approach.
19. Eckbo, P.L., H.D. Jacoby, and J.L. Smith, "Oil Supply Forecasting: A
Disaggregated Process Approach," Bell Journal of Economics, Spring
1978. Originally distributed as Working Paper MIT-EL 77-001.
Work is under way on a forecasting method that incorporates
explicit representations of the steps in the oil supply
process: exploration, reservoir development, and production.
The discovery history of a region and other geological data are
input to a statistical analysis of the exploratory process. The
resulting estimate of the size distribution of new reservoirs is
combined with an evaluation of reservoir economics--taking
account of engineering cost, oil price, and taxes. The model
produces a forecast of additions to the productive reserve base
and of oil supply. Progress to date is demonstrated in an
application to the North Sea.
20. Eckbo, P.L., and J.L. Smith, "Needed Exploration Activity Offshore
Norway", Northern Offshore, August 1976.
This article analyzes the linkages between North Sea Block
allocations and their effect on future production. A
statistical model is developed to explore the methodology by
which Norway influences attainment of its target production rate
by allocating blocks to producers.
21. Hnyilicza, E. and R.S. Pindyck, "Pricing Policies For A Two-Part
Exhaustible Resource Cartel: The Case of OPEC", European Economic
Review, Vol. 8, 1976, pp. 139-154. Originally distributed as Working
Paper MIT-EL-76-008WP.
This paper examines pricing policies for OPEC under the
assumption that the cartel is composed of a block of spender
countries with large cash needs and a block of saver countries
with little immediate need for cash and a lower rate of
discount. The decision problem for the two-part cartel is
__
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embodied in a game-theoretic framework and the optimal
bargaining solution is computed using results from the theory of
cooperative games developed by Nash. The set of feasible
bargaining points--and the corresponding Nash solution--is
computed under two assumptions on the behavior of output
shares: that they are subject to choice and that they are fixed
at historical values. The results suggest that, for fixed
output shares, there is little room for bargaining and the price
path approximates the optimal monopoly price path. If the
shares are subject to control, optimal paths depend
significantly on the relative bargaining power of each block.
22. Jacoby, H.D., "M.I.T. World Oil Project", in K.C. Hoffman (ed.),
Proceedings of the Workshop on World Oil Supply-Demand Analysis (June
1-2, 1977), Brookhaven National Laboratory, October 1978.
A description of the structure of the project, methods being
used, and problems of data and analysis.
23. Jacoby, H.D., "The Oil Price 'Ratchet' and U.S. Energy Policy",
Kokusai Shigen (International Resources), Tokyo, Fall 1979.
This is an analysis and interpretation of events in the world
oil market during 1979. OPEC behavior is described in terms of.a
"ratchet" method of price administration, whereby capacity is
held tight, spot prices surge upwards, and official contract
prices follow thereafter. The implications for U.S. policy are
discussed.
24. Jacoby, H.D. and J.L. Paddock, "Supply Instability and Oil Market
Behavior," in International Energy Strategies, J. Dunkerley (ed.),
Oelgeschlager, Gunn and Hain, Inc., Cambridge, MA, 1980.
An analysis of the effect of supply disruptions on oil price
behavior. The "price ratchet" effect is introduced and related
to an analysis of OPEC oil production capacity.
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25. Jacoby, H.D. and J.L. Paddock, "Supply Instability and Oil Market
Behavior", in Energy Systems and Policy, Vol. 3, No. 4 (Winter 1980),
pp. 401-423. Originally distributed as Working Paper MIT-EL-79-033WP.
This paper analyzes the supply disruption in world oil markets
in the winter of 1978-1979. The causes of the resultant price
rise are explored in the context of spot market behavior and
cartel core behavior. In particular, the economic and political
roles of excess supply in the Persian Gulf nations are
discussed, and conclusions for the likely future are presented.
Finally, the implications of these conclusions for U.S. policy
are discussed.
26. Jacoby, H.D. and J.L. Paddock, "Combining Analytical Models and
Judgment in Oil Price Forecasts," Proceedings of the American
Statistical Association, (Business and Economics StatisticsSection),
American Statistical Association, Washington, D.C., 1981.
A set of interlinked models of world oil supply, demand and
market behavior is used to develop an analysis of future oil
prices. In exercises of this type, results often involve
single-line forecasts of price, perhaps with some range of
values calculated with the use of alternative values of key
parameters. In the case of the oil market, however, the
uncertainty is so great that analytical models need to be used
in a way that allows easy input of expert judgment and that
fully reflects the range of possible outcomes.
This technique used here is to define a universe of possible
combinations of oil price and world economic conditions over the
decade of the 1980s, and then to use analytical models and
judgment to define the set of points, G, that can be shown to be
"unlikely" to occur. The complement of this set, G', then
defines a "window" of oil price and growth patterns which are
"not-unlikely," and this result is offered as a way of stating
the existing level of knowledge, and ignorance, about likely
future developments in oil markets.
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27. O'Carroll, F. and J.S. Smith, "Probabilistic Methods for Estimting
Undiscovered Petroleum Resources", forthcoming in J. Moroney (ed.)
Advances in the Economics of Energy and Resources, Vol. III, J.A.I.
Press, 1980. Originally distributed as Working Paper MIT-EL 80-008WP.
The problem studied in this paper is how to estimate and, if
possible, set limits to the petroleum resources yet to be
discovered in a partly explored area. The approach pursued uses
data of the kind normally available in the public domain:
historical sequences of fields discovered and their estimated
recoverable reserves, and numbers of exploration wells drilled.
No use is made of geological data or judgment.
Four models are constructed for detailed study, representing a
range of levels of sophistication. The simplest model
postulates only that discovery probabilities are proportional to
field size, as indexed by millions of barrels of recoverable
hydrocarbons. Greater sophistication is then added to obtain
other models, by specifying a lognormal distribution of field
size, a more general discovery probability law and a link
between discovery rate and drilling activity. The performance
of these models is examined using data for the Northern North
Sea (56 - 620 North).
In some respects, different models and data lead to similar
conclusions. All calculations agree that there are no more
fields to be discovered in the two largest size-classes and that
there are few if any undiscovered fields with recoverable
reserves of 500 million barrels or above. They also agree that
the majority of undiscovered fields are in the smallest class in
the range considered (around 50 million barrels or less). With
regard to the total volume of resources in undiscovered fields,
however, different approaches give widely different results.
The estimated total of hydrocarbon resources in the area, ranges
from about 40 to 70 billion barrels of oil and oil equivalent,
depending on the model. This is similar to the range of
estimates available from various oil industry sources in recent
years, using geological data and judgmental methods. These
results show that even for a given model and data set, a range
of uncertainty surrounds the estimates of total resources which
is of the same order of magnitude as the estimate itself.
One lesson is that better results may be obtained with
relatively simple models. More ambitious models attempt to
improve precision by representing the underlying processes in
greater detail. If, however, this representation is incorrect,
the net result is to degrade rather than improve the quality of
the results obtained.
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28. Paddock, J.L., "MIT World Oil Project Outlook," in World Energy
Outlook, proceedings of the St. Louis University International
Business Conference, St. Louis, 1970.
An analytic forecast of possible combinations of oil prices and
economic growth for the world through 1990. The MIT World Oil
Project Models are simulated and the results presented.
29. Paddock, J.L., "World Oil Markets: MIT World Oil Project Outlook for
the 1980s, " in Proceedings of the American Institute of Chemical
Engineers National Meetings: 1980, AIChE, New York, 1980.
Various analytic approaches for forecasting world oil prices and
economic growth yield "reference" or point estimates. This
paper points out the futility of point forecasts due to the
great uncertainties involved in exercises of this type. THE MIT
World Oil Project Models are simulated to show the wide range of
possible and consistent outcomes.
30. Pindyck, R.S., "Cartel Pricing and the Structure of the World Bauxite
Market", March 1977, Bell Journal of Economics, Autumn 1977.
Originally distributed as Working Paper MIT-EL 77-005WP.
A cartel is unstable if one or more of its members can earn
higher revenues in the long run by undercutting the cartel price
and expanding production. In this paper dynamic and static
models of the world bauxite market are used to assess the
stability of the International Bauxite Association, to suggest
possible changes in its configuration, and to determine the
likely impact of the cartel on the structure of the bauxite
market and the future of bauxite prices.
31. Pindyck, R.S., "Gains to Producers from the Cartelization of
Exhaustible Resources", The Review of Economics and Statistics,
1978. Originally distributed as Working Paper MIT-EL 76-012WP.
May
The potential gains to produceres from the cartelization of the
world petroleum, copper and bauxite markets are calculated under
the assumption of optimal dynamic monopoly pricing of an
exhaustible resource. Small quantitative models for the markets
for each resource are developed that account for short-term
resource are measured by calculating optimal price trajectories
under competition and under cartelization, and comparing the
sums of discounted profits resulting from each.
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32. Pindyck, R.S., "OPEC's Threat to the West", Foreign Policy, Spring
1978. Originally distributed as Working Paper MIT-EL 78-00iWP.
This paper examines three important issues in international
energy markets, and the implications for American energy and
economic policy. First, the paper considers the likely pricing
behavior of the OPEC cartel, and argues that OPEC it most likely
to set the price of oil at the optimal level, i.e., the level
that maximizes the sum of present and future discounted
revenues. Some predictions regarding OPEC pricing are offered,
and the implications for world energy markets are considered.
We argue that the kind of crisis that has been of concern to the
CIA, namely a major shortage of oil beginning around 1982, is
extremely unlikely to occur, and instead we need to be more
,concerned with the possiblity of an embargo in the short term.
Finally, the implications of higher energy prices for GNP
growth, unemployment, and inflation in the industrialized
countries is discussed. The paper concludes with a set of
energy and economic policy recommendations.
33. Pindyck, R.S., "Optimal Exploration and Production of a Nonrenewable
Resource", Journal of Political Economy, October 1978. Originally
distributed as Working Paper MIT-EL 77-013WP.
Most studies of nonrenewable resource production and pricing
assume there is a fixed reserve base to be exploited over time,
but in fact with economic incentives reserves can be increased.
Here we treat the reserve base as the basis for production, and
exploratory activity as the means of increasing or maintaining
reserves. "Potential reserves" are unlimited, but as depletion
ensues, given amounts of exploratory activity result in even
smaller discoveries. Given these constraints, resource
producers must simultaneously determine their optimal rates of
exploratory activity and production.
We solve this problem for
competitive and monopolistic markets, and show that if the
initial reserve endowment is small, the price profit will be
U-shaped; at first production will increase as reserves are
developed, and later production will decline as both exploratory
activity and the discovery rate fall.
34. Pindyck, R.S., "Energy Demand and Energy Policy: What Have We
Learned," presented at the International Scientific Forum on an
Acceptable World Energy Future, Miami, Florida, November 30, 1978.
This paper is a survey of about thirty recent econometric
studies of energy demand, including the international study of
world energy demand done under the M.I.T. World Oil Project.
The paper argues that there is much more of a consensus than one
might infer from a casual scanning of the recent statistical
evidence.
B-14
Differences in elasticity estimates by various researchers can
in large part be attributed to model structure and to the nature
of the data used. We argue that there is no growing evidence
that in the iong term, price elasticities of demand are
significantly larger than we had thought to be the case
earlier. The paper also discusses the implications of this
point for the formulation of energy policy.
35. Pindyck, R.S., "OPEC's Dilemma: How to Control Production Levels."
This is an article that appeared in The Wall Street Journal, December
13, 1978.
A layman's summary report of an OPEC pricing/production behavior
model, focusing on price forecasts.
36. Pindyck, R.S., The Structure of World Energy Demand, M.I.T. Press,
March 1979.
This book provides a detailed description of the work done on
world energy demand. The book begins with a discussion of the
structure of energy demand, and then describes the specification
of alternative demand models for each sector of energy use.
Next, a number of methodological issues involved in the
estimation of energy demand models are discussed in detial.
Statistical results are presented for energy demand models
pertaining to each sector of use. Finally, the book discusses
the relationship between the price and demand for energy and
economic growth, including the implications of our studies for
the impact of higher energy prices on economic growth and
employment.
37. Pindyck, R.S. "The Cartelization of World Commodity Markets",
American Economic Review, May 1979.
This paper discusses the likelihood of cartels spreading to
other commodity markets.
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38. Pindyck, R.S., "Interfuel Substitution and the Industrial Demand for
Energy: An International Comparison", Review of Economics and
Statistics, May 1979. Originally distributed as Workng Paper MIT-EL
77-02WP.
This paper describes the specification and estimation of some
alternative models of energy demand for the industrial sectors
of a number of industrialized countries. All of the models are
based on a two-stage determination of energy expenditures. The
first stage of each model determines the fraction of the cost of
production allocated to energy, as opposed to other factor
inputs such as capital and labor. In the second stage, energy
expenditures are allocated to different fuels.
The most promising results came from the use of a two-stage
translog cost function as a description of the production
process. The advantage of this translog function is that it is
a general approximation to any cost function, and therefore does
not a priori impose constraints of homotheticity, or
separability on the structure of production. These functions
were estimated using pooled data for 10 countries. Other
models, including static and dynamic logic models, were also
tested. Results from this study seem to indicate that price
elasticities for industrial energy demand are larger than had
been thought earlier, and that in the long run there may be
substitutability between energy and capital. The own price
elasticity for total industrial energy demand was estimated to
be about -0.8.
39. Pindyck, R.S., "Some Long-Term Problems in OPEC Oil Pricing",
Journal of Energy and Development, Spring 1979. Originally
distributed as Working Paper MIT-EL-78-028WP.
in
This paper deals with two long term issues in OPEC oil pricing.
First, to what extent can a changing allocation of production
cutbacks, in which a growing burden is placed on Saudi Arabia
and a few other countries while other cartel members behave
essentially as price takers, tend to erode the monopoly price
over the next twenty years? Second, to what extent would the
emergence of Mexico as a significant producer of oil reduce the
monopoly power of the cartel and reduce the cartel price? Both
of these questions are dealt with using our small monopolistic
model of optimal cartel pricing.
B-16
40. Pindyck, R.S., "The Characteristics of the Demand for Energy", in
John Sawhill (ed.), Energy Conservation and Public Policy,
Prentice-Hall, 1979.
This paper discusses the characteristics of energy demand, and
the likely impact of changing energy prices on aggregate energy
demand and the demands for individual fuels. The paper also
provides a survey of statistical studies of energy demand
elasticities done over the last few years.
41. Pindyck, R.S., "International Comparisons of the Residential Demand
for Energy", in European Economic Review, January, 1980. Originally
distributed as Working Paper MIT-EL 77-027WP which is an updated
version of MIT-EL 76-923WP.
This paper describes alternative models of energy demand in the
residential sectors of a number of industrial countries. The
models are based on a two-stage determination of energy
expenditures. The first stage of each model determines what
fraction of consumers' total budgets will be spent on energy, as
opposed to such other consumption categories as food, clothing,
etc. In the second stage, energy expenditures are allocated to
alternative fuels.
The most promising results came from the use of a two stage
indirect translog utility function. the advantage of the
translog function is that it is a general approximation to any
utility function and therefore does not a priori impose
constraints of homotheticity, separabilify, or additivity on the
structure of demand. These functions were estimted using pooled
data for nine countries. Other models, including the logit
model, were also tested. Results from this study seem to
indicate that price elasticities for energy demand are larger
than had been thought earlier. The own price elasticity for
total energy demand was estimated to be about -.9.
42. Smith, J.L. "A Probabilistic Model of Oil Discovery", forthcoming in
Review of Economics and Statistics, Fall 1980. Originally
distributed as Working Paper MIT-EL 80-005WP.
This paper presents a discovery model based on the notion that
individual reservoirs are discovered randomly, with probability
proportional to reservoir size. Our model is an adaptation of
Kaufman's original formulation of this problem. The changes we
propose are motivated by the need for less computational demands
during implementation and reduced sensitivity to data errors
which are inherent in reported reserve volumes. The resulting
model is applied to the North Sea petroleum province.
B-17
Estimates of the total volume of remaining reserves and the size
of individual deposits are obtained and compared to estimates
provided by the industry. The method of analysis presented here
appears to perform well, and constitutes a useful addition to
the set of tools available for economic studies of petroleum
supply.
43. Smith, J.L. and G.L. Ward, "Maximum Likelihood Estimates of the Size
Distribution of North Sea Oil Deposits", Proceedings of the American
Statistical Association, August 1980, and forthcoming in Journal of
the International Association of Mathematical Geologists, 1982.
Estimates of the ultimate resource potential of the North Sea
petroluem province are derived from a probabilistic model of the
discovery phenomenon. The discovery of individual deposits is
treated as sampling without replacement from a target population
(the underlying resource base), and with individual discovery
probabilities defined in terms of deposit size. Conditional on
the underlying resource base, the model specifies the likelihood
of all possible sequences of discoveries. Conversely, upon
observing a particular discovery sequence, it is possible to
identify the underlying resource base that maximizes the
likelihood of this event. The present paper examines the
sensitivity of such resource estimates to the postulated form of
the size distribution of deposts, and to the presumed degree of
randomness inherent in the discovery process.
B-18
WORKING PAPERS AND REPORTS
44.
Adelman, M.A., "The Political Economy of the Middle East - Changes
and Prospects Since 1973," MIT-EL 79-037WP, June 1979.
Economic relations of the U.S. and the Middle East are dominated
by the production and export of petroleum. This paper first
looks at our "non-problems", or our belief in certain fictions
that prevent us from investigating the real nature of our
problems. Among these fictions are: the shortage or "gap"
between oil supply and demand and panic about an "energy crisis,"
the political problem of "access" and "assurance of supply," and
the U.S.-Saudi "special relationship." The real problem is
price. This is discussed in the context of world oil supply and
demand forecasts, world economic growth, communist sector
exports, the strategies and problems of the cartel, the world
recession-stagnation of 1974-1975, and appropriate options for
the U.S.
45.
Adelman, M.A. and H.D. Jacoby, "Oil Prices, Gaps, and Economic
Growth", MIT-EL 78-008WP, May 1978.
This paper uses the analytical results from the World Oil Project
as a basis for discussion of likely events in the oil market in
the 1980's.
46.
Adelman, M.A. and J.L. Paddock, "An Aggregate Model of Petroleum
Production Capacity and Supply Forecasting", MIT-EL 79-005WP,
Revised July 1980.
This paper presents a complete discussion and documentation of
the M.I.T. World Oil Project Aggregate Supply Model. First, the
theoretical development and methodology are presented. The
relationsips between geologic and economic characteristics are
analyzed and a system of equations representing the inertial
process model are discussed. Next, the construction of the data
base is described and the data, by country segment, is presented
in detail. Methods of bridging the many gaps in the data are
discussed. Finally, the simulation forecasts of the model are
presented through 1990.
B-19
47.
Agmon, T., D.R. Lessard and J.L. Paddock, "The International Finance
Aspects of OPEC: An Informational Note", MIT-EL 76-005WP, March
1976.
The purpose of this paper is to set forth the relevant questions
and problems confronted by the world's capital markets due to the
structural changes in the world oil market. It presents a
summary description of several financial aspects of OPEC,
including the organization of relevant information and data into
a form useful for subsequent analysis.
First, an analysis of the many forecasts of OPEC accumulated
financial surpluses and their estimated investment
disposition--with particular focus on the U.S., U.K., and
Euromarkets is presented. There follows a brief discussion and
extensive source listing of the various financial proposals which
arose to deal with these financial surpluses. Concluding
sections present a chronology of the major international
financial events which led up to the 1973 price rise and
thereafter, and a summary of the subsequent changes in U.S.
corporate tax policy.
48.
Agmon, T., D. R. Lessard and J.L. Paddock, "Accommodation in
International Capital Markets: Paying for Oil, Financing Oil and
the Recyling of Oil Funds", MIT-EL 76-010WP, April 1976.
This paper focuses on the accommodation role served by the
international financial markets in facilitating world oil market
equilibration. We analyze the specific roles of primary and
secondary recycling of oil funds in the international adjustment
process. An extensive empirical study is then conducted using
data for 1973, 1974, and early 1975. This study reveals the
magnitudes and important interrelationships between flows in the
markets for goods and financial assets. We conclude with a
general equilibrium model which derives the supply behavior of an
oil-producing country.
49.
Beall, A.O., "Dynamics of Petroleum Industry Investment in the North
Sea", MIT-EL 76-007WP, June 1976.
The purpose of this study is to assess the economic potential of
petroleum fields of the North Sea, as reflected in financial
flows to the operating companies and host governments. Financial
flows include future streams of exploration and development
investment expenditures, and sales and tax revenues which accrue
in the private and public sectors.
B-20
A prerequisite for the economic analysis is an evaluation of
current petroleum potential of prospective North Sea Acreage,
conducted at a disaggregated (pool) level. This part of the
study relies heavily on geological insight and judgemental
analysis provided by the author, as well as on published
information and formal analytical methods.
The level of cash flows associated with the estimated resource
potential is shown to depend on host government tax and
investment policies, the world price of crude oil and current
industry perceptions of the profitability of individual fields.
50.
Bradley, P., "Production of Depleting Resources: A Cost-Curve
Approach", MIT-EL 79-040WP, June 1979.
The current energy situation has riveted attention on extractive
resources--petroleum, uranium, and coal--and economists have
become increasingly concerned with supply analysis for these
commodities. Theory cannot ignore salient factors affecting
production if observed prices and outputs are to be explained.
This paper formulates the analysis of resource production through
the use of cost curves to explain firm and industry output. The
aim is to retain the desciptive power of this traditional mode of
analysis. It is necessary, of course, to modify the calculation
of costs to take account of limitations imposed by nature on
resource output.
Definitions are presented for long-run average and marginal cost
where both production volume and production rate are taken
explicitly into account. Corresponding cost curves are
illustrated for the simplest situation, uniform output until
resource exhaustion. Section III illustrates derivation of cost
curves for a more complicated case, declining output over time
with shutdown occurring before the resource is entirely used.
Section IV uses the cost-curve method of presentation to consider
a familiar question in resource development: how does the
interest rate affect rate of use? In the concluding section some
cautionary notes are raised concerning application of this type
of analysis, in particular with respect to the validity of the
present-value maximization postulate.
51.
Carson, J., "A User's Guide to the World Oil Project Demand Data
Base", MIT-EL 78-016WP, August 1978.
A description of all the data used for demand analysis in the
World Oil Project. Cites sources used, range of years available,
and provides a description of all conversions, aggregations, and
other standardization of units. An index of computerized data
files, information on how to access the computerized data or
B-21
obtain the information in other formats included. Purchasing
power parities and issues involving energy unit conversion are
discussed.
52.
Carson, J., W. Christian, and G. Ward, "The MIT World Oil Model:
Documentation and Use", MIT-EL 81-027WP, December 1981.
Description of the three separate models used by the World Oil
Project. The demand model forecasts energy demand in the OECD
countries and aggregates petroleum product demand with crude oil.
demands from the rest of the world, excluding planned economies.
The supply model forecasts possible production scenarios for oil
producers throughout the world. The integration model integrates
demand and supply forecasts and allocates actual production to
producers.
The paper reviews the estimation methodology and database used in
constructing the models. The equations are described and the
behavior summarized. Policy use of the model is described and
limitations of the models are identified. Sample output is
presented and the use of the simulation framework is described.
53.
Crandall, M.S., "The Economics of Iranian Oil", MIT-EL 75-003WP,
March 1975.
This paper presents an analysis of the production pattern and
development cost structure of the Iranian "Consortium" oil
fields. Production capacity of exisiting fields under
alternative development technologies (e.g., water and gas
injection systems) is analyzed first. This includes capacity
maintenance and growth plans. The paper then presents a
comparative cost study for these fields and derives per-barrel
capital costs and present worth of each field.
Next the paper reviews Iran's potential new fields and performs a
similar production/cost study based on the published series of
"Look Ahead and Capital Development Plans" through 1978 as issued
by both the Iranian government (through its National Iranian Oil
Company) and the Oil Service Company of Iran (OSCO - a private
company owned by the former Consortium companies).
B-22
54.
Dailami, M., "The Choice of an Optimal Currency for Denominating the
Price of Oil", MIT-EL 78-026WP, October, 1978, revised February 1979.
Recently much concern has been expressed about the impact of the
dollar depreciation on the real export earning of OPEC and the
implications of any protective action taken by OPEC on world
economic conditions and the future stability of the dollar. With
approximately 80 percent of OPEC imports originating outside the
United States and with a predominantly large proportion of OPEC's
past accumulated surpluses invested in dollar denominated assets,
the loss incurred as the result of dollar depreciation appears to
be substantial. Moreover this loss will be heavier in the future
if the historical trend of OPEC's trade shares with the strong
currency countries such as Japan and Germany, continues its
upward momentum.
To protect its export earnings, OPEC can, in principle, either
change the dollar price of oil or shift from its existing
dollar-oil pricing system to a system based on a currency
basket. The objective of this paper is to analyze the impact of
the dollar fluctuation on the purchasing power of OPEC's oil
revenues and to identify some of the major problems facing OPEC
in its attempt to substitute any other currency or a "basket of
currencies" for the dollar.
55.
Dailami, M., "The Determination and Control of Money Supply in an
Oil Exporting Country: The Iranian Experience", MIT-EL 78-027WP,
July 1978, revised February 1979.
The impact on the economies of the oil importing nations of the
late 1973 oil price increase and its consequent international
payment imbalances has been the subject of a great deal of
research. But relatively little emphasis has been placed on the
severe problems that the resulting capital inflows have created
for the economies of oil-exporting counties. Most of these
countries have experienced severe inflation and economic
disparities since 1974. A better understanding of the role of
oil revenues on the domestic economy of these countries can
provide useful guidelines for better management of these
economies and as a result provide more stability in the world oil
market.
In this paper our objective is to analyze the role of oil revenue
in the determination and the controllability of money supply in
Iran. In particular we will pursue the double objectives of
analyzing the degree to which the Central Bank has been able to
influence the determination of money supply and the types of
monetary instruments used in its effort to control money supply.
Any change in oil revenue will change the foreign reserves
holding of the Central Bank and at the same time, given the
B-23
level of government expenditure, will affect the claims of the
Central Bank on the government. This dual feature of oil revenue
in Iran seems to us to be a key element in understanding the
mechanism of the money base determination, and hence has
constituted the core of our theoretical analysis.
56.
Dailami, M. "Measuring the Purchasing Power of Major Currencies from
OPEC's Viewpoint", MIT-EL 79-022WP, February 1979.
With the price of oil quoted in terms of the U.S. dollar and with
the dollar fluctuating differently with respect to different
currencies, the question has emerged as how to measure the
fluctuation in the value of the dollar which is relevant to
OPEC's economic interest and is theoretically meaningful.
Related to this is the question of devising an appropriate
standard of value for measuring the real rate of return obtained
on OPEC's financial surpluses. Concern over these two questions
has recently heightened, partly because of the large and
continuous depreciation of the dollar since the beginning of
1977, with its implication for the real price of oil, and partly
because of the need for some indices of value to be used by
oil-producing countries in evaluating their options of choosing
between "oil-in-ground and money-in-bank". The problem of
comparing these two options is particularly keen to
surplus-oil-producing countries such as Saudi Arabia and Kuwait
who are compelled to invest a relatively high proportion of their
oil revenues in foreign financial assets.
In this paper our objectives are two: First, to present data on
the rate of change in the purchasing power of the dollar from
OPEC's viewpoint for the period 1971-1977, and to use this to
measure the depreciation in OPEC's financial assets. Second, to
compare the performance of the dollar with other major currencies
from OPEC's point of view over the same period and to see how
OPEC would have fared had currencies other than the U.S. dollar
been used for oil-pricing purposes.
57.
Eckbo, P.L., "OPEC and the Experience of Previous International
Commodity Cartels", MIT-EL 75-008WP, August 1975.
This study presents a review and analysis of the available
literature of the history of international commodity cartels.
Evidence was gathered on 51 cartel agreements in 18 countries.
Cartel "success" was defined in terms of the ability of the
organization to raise price to at least two times the unit cost
of production and distribution. Of the 51 cartel organizations
reported in the literature, 19 achieved price controls which
raised the level of charges to consumers significantly above what
they would have been in the absence of collusive agreements.
B-24
The experience of these previous cartels shows that few were able
to survive for very long. Those who did succeed in raising
prices for four years or more were characterized by markets where
the concentration of production was high, the demands inelastic,
the cartels market share was high and the membership had cost
advantages over outsiders. An additional characteristic of the
successful cartels was that governments were not directly
involved in their operations. The paper attempts to draw
conclusions about the future of OPEC based on its characteristics
in comparison to those of successful and unsuccessful cartels in
the past.
58.
Heide, R., "Log Linear Models of Petroleum Product Demand:
International Study," MIT-EL 79-006WP, February 1979.
An
This paper provides preliminary results on the estimation of
petroleum product demands for major oil consuming countries and
final results for several countries whose oil consumption is less
significant. More sophisticated models used to analyze the major
countries' consumption have been developed elsewhere (Pindyck,
etc.). The model specifications were simple log-linear, with
right-hand side variables of price of the particular petroleum
product, per capita GDP, and lagged per capita consumption of the
product.
59.
Heide, R., "The Demand for Motor Gasoline: A Multi-Country Stock
Adjustment Model", MIT-EL 79-057WP, April 1979.
The demand for motor gasoline is a large component of total
demand for oil in industrial countries. This paper describes the
development and testing of a dynamic gasoline model using a
capital stock model for 11 major countries. The underlying
assumption is that gasoline demand is a demand derived from
distinct consumer decisions, such as gasoline price, income, and
available automobile stock. Automobile stock, distance, and
efficiency adjustments are all posited to take more than one
period; the dynamics thus arise from this adjustment behavior.
B-25
60.
Jacoby, H.D., et al., "Energy Policy and the Oil Problem:
of Current Issues", MIT-EL 79-046WP, September 1979.
A Review
This is a review and evaluation of oil-related energy policy
issues under consideration by the U.S. Congress in Fall 1979. It
covers oil import controls, security measures, oil decontrol and
excess profits taxation, syn-fuels programs, and the energy
mobilization board. To set the stage for analysis of specific
proposals, there is a discussion of the energy problem and its
origins in the world oil market, with a particular focus on
security aspects of the oil situation and the likely gains from
oil import reduction as compared with other security measures.
The study was sponsored by M.I.T. Center for Energy Policy
Research, but made substantial use of data and analysis resulting
from the M.I.T. World Oil Project.
61.
Jacoby, H.D. and J.L. Paddock, "World Oil Prices and Economic Growth
in the 1980s", Working Paper MIT-EL-81-06OWP, December 1981.
A set of interlinked models of world oil supply demand and market
behavior is used to develop an analysis of future world oil
prices and economic growth. In exercises of this type, results
often involve single-line forecasts of price perhaps with some
range of values calculated using alternative values of key
parameters. In the case of the oil market, however, the
uncertainty is so great than analytical models need to be applied
in a way that allows easy input of expert judgment and that fully
reflects the range of possible outcomes.
The technique used here is to define a universe of possible
combinations of oil price and world economic conditions over the
decade of the 1980s, and then to use analytical models and
judgment to define the set of points, G, than can be shown to be
unlikely to occur. The complement of this set, G', then defines
a "window" of oil price and growth patterns which are
not-unlikely. This result is offered as a way of stating the
existing level of knowledge, and ignorance, about likely future
developments in world oil markets.
B-26
62.
Members of the M.I.T. World Oil Project, "Progress on Analysis of
the World Oil Market," MIT-EL 75-015WP, October 1975.
This is the 6 month report on the Project. It presents an
overview of the research design and the details of work in
progress as of Fall, 1975, including the demand analysis, the
supply studies, and the various studies of market-clearing
processes. It also includes a revised version of the work
schedule presented in the original proposal.
63.
Members of the M.I.T. World Oil Project, "Progress Report to the
National Science Foundation for Project on Cartel Behavior and
Exhaustible Resource Supply: A Case Study of the World Oil
Market--7/l/78 through 6/30/79," September 1979.
This report covers the first year of support under NSF Grant No.
DAR-78-19044. It describes research on disaggregated methods of
analysis of oil supply, including tax and financial aspects, and
analysis of cartel behavior. ic also reports on the continuing
process of documentation and use of analysis methods developed
earlier in the project.
64. Owsley, H., "The Effect of Increased National Oil Company Sales on
OPEC and the Long Run Structure of the International Petroleum
Market", MIT-EL 79-056WP, May 1979.
The effect of increased national oil company sales on the world
petroleum system is examined. These sales cut into the volume of
crude handled by the major international companies and will
impact upon OPEC's pricing ability.
The growth of these sales is measured using annual reports and
other industry statistics. Their effects on oil company behavior
are examined from both a theoretical and an empirical
standpoint. The analysis shows that the firms' behavior patterns
are indeed changing, as predicted.
These changes will create pressure on OPEC producers to restrict
production. Using supply/demand models developed by the M.I.T.
World Oil Project, the output levels of major cartel members are
simulated. These results are compared with the countries'
economic needs into the late 1980s.
The simulations indicate that the OPEC core will encounter
financial difficulties if current programs are continued.
Alternate strategies for the cartel are discussed.
B-27
65.
Supply Working Group, M.I.T. World Oil Project, "Supply Forecasting
Using Disaggregated Pool Analysis", MIT-EL 76-009WP, May 1976.
This study develops and illustrates a methodology for forecasting
additions to reserves and production in a relatively young
petroleum province. Components of the analytical method include
an exploration process submodel which predicts the arrival and
size of new discoveries and a reservior development submodel
which determines the rate at which discovered resources become
available as economic reserves.
Both submodels emphasize the influence which economic variables
such as oil price, development costs, and government taxes exert
on the rate and pattern of resource exploitation. Consequently,
the analytical framework neatly accommodates policy simulations
which arise from varied economic scenarios.
Implementaton of the forecast methodology.is demonstrated for the
North Sea petroleum province. Projection of future additions to
reserves and annual production are carried out in detail, so as
to reveal both the flexibility and the limitations of the
analytical procedure in its present form.
66.
Ward, G.L., "The Aggregate Supply Model: Documentation and Use,"
M.I.T. Energy Laboratory, Working Paper No. MIT-EL 81-038WP, June
1981.
This paper provides documentation of the Aggregate Supply Model,
a computer-based model designed to forecast oil production
capacity by producing region. The model is an inertial-process
type model based on a few simplifying assumptions. These
assumptions, plus key terms important for understanding the
model, are described in this paper. Data requirements are
identified and an example of results from a model simulation is
presented. In addition, a technical description of both the
model and the data is presented, along with a description of the
computer code that implements the model.
C-1
APPENDIX C
List of Meetings, Lectures, Conferences, and Testimony by Project
Personnel
For the period of July 1, 1980 through December 31, 1981
M.A. Adleman
October 1980
Lectures on energy prices and markets in the 1980's,
with special attenion to oil. Presented at the
Instituto Mexicano Del Petroleo, Mexico
November 1980
Speaker at Energy Security Conference Yale University,
New Haven, Connecticut.
January 1981
Testimony on international energy/oil situation before
U.S. Senate Committee on Banking, Housing, anid Urban
Arrairs.
February 1981
Participant in panel on energy conditions today and
tasks for the future at "The History of the U.S.
Energy Policy" symposium held at the Lyndon Baines
Johnson Library, Austin, Texas.
May 1981
Presented talk on OPEC as a cartel at "The Future of
OPEC and the Long Run Price of Oil" conference held at
the University of Houston, Houston, Texas.
July 1981
Presented a paper on "North Sea Oil and Gas in the
World Market: Perspectives in 1981-2000" at the
Center for Policy Studies, London England.
November 1981
Spoke on the security of oil supplies at the IAEE
Conference, Houston, Texas.
C-2
Henry D. Jacoby
July to
December 1980
September 1980 1
April 1981
Member of National Petrolem Council Committee to
Prepare Study of Refinery Flexibility.
Member of National Petroluem Council Committee on
Emergency Preparedness, and of the Coordinating
Subcommittee of the Council's study of this topic.
January 1981
Speech on world energy issues, sponsored jointly by
M.I.T. Industrial Liason Office and Keidomren (Council
of Economic Organizations), Tokyo
January 1981
Speech to the M.I.T. Alumni Council on "International
Oil and U.S. Energy Security"
January 1981
Testimony on international energy/oil situation before
U.S. Senate Comittee on Banking, Housing, and Urban
Affairs.
February 1981
Participlant in panel on energy conditions today and
tasks for the future at "The History of the U.S.
Energy Policy" symposium held at the Lyndon Baines
Johnson Library, Austin, Texas.
May 1981
Presentation on world energy issues to Annual
Conference Diversified Business Division, Aetna Life
and Casualty Co.
May 1981
Presented talk on OPEC as a cartel at "The Future of
OPEC and the Long Run Price of Oil" conference held at
the University of Houston, Houston, Texas.
June 1981
Participant in Energy Security Workshop Sponsored by
Harvard Kennedy School of Government and Center for
Science and International Affairs
July 1981
Presented a paper on "North Sea Oil and Gas in the
World Market: Perspectives in 1981-2000" at the
Center for Policy Studies, London, England.
November 1981
Speech on the security of oil supplies at the IAEE
Conference, Houston, Texas.
November 1981
Speech on world oil conditions to Israel Cultural
Centre, Boston.
C-3
James L. Paddock
July 1980
Member of the Coordianting Subcommittee of the
National Petroleum Council's Study on U.S. Refinery
Flexibility." attended meeting in Washington, D.C.
November 1980
Discussant at M.I.T. Center for Energy Policy Research
meetings on World Oil Market Developments. Boston, MA.
May 1981
M.I.T. Center for Energy Policy Research meetings.
Rapporteur in sessions on future research in: (1)
energy and international finance; and (2) world oil
supply. Cambridge, MA.
May 1981
Speaker on world oil and international finance at
meeting for economic and energy planners from South
American countries. Sponsored by U.S. Bureau of Labor
Statistics. Cambridge, MA.
June 1981
Meeting on world oil prospects with staff member of
U.S. National Security Council. Cambridge, MA.
December 1981
Speaker on world oil market prospects at Stanford
University International Energy Workshop. Stanford,
CA.
Geoffrey Ward
August 1980
Presented a paper on applying a statistical model for
estimation of undiscovered oil reserves at the
Business and Economic Statistics Section of the
American Statistical Association. Houston, Texas.
APPENDIX D
M.I.T. Center for Energy Policy Research
Conferences on the World Oil Market
Attached are meeting schedules and lists of participants for
conferences on the world oil market. All costs of these conferences were
paid by the M.I.T. Center for Energy Policy Research (CEPR). The
conference's preparation, including discussion memoranda, data analysis
results, and discussion leadership, was drawn primarily from research
carried out under N.S.F. sponsorship
CEPR Meetings:
1. November 1980
a. Schedule
b. List of Participants
D-1
D-3
2. May 1981
a.
b.
Schedule
List of Participants
D-9
D-10
D-1
AGENDA
M.I.T. CENTER FOR ENERGY POLICY RESEARCH
RESEARCH & POLICY ISSUES IN THE CONTEXT
OF WORLD OIL MARKET DEVELOPMENTS
November 16-18, 1980
Sunday, November 16
6:00 - 7:00 p.m.
Cocktails
7:00 - 8:00 p.m.
Dinner
8:00 - 9:30 p.m.
(SBue)
"Energy Prices, the Economy, the Environment
and the Individual: A Research Preview"
Presentation:
Moderator:
David Wood
Loren Cox
Monday, November 17
Breakfast
7:30 - 8:30 a.m.
8:30 -10:30 a.m.
(Vettow)
"Recent Developments in World Oil Markets"
Presentation:
Comments:
Moderator:
Morris Adelman
Thomas Neff
Brice Sachs
Lawrence Goldstein
Loren Cox
10:30 -10:45 a.m.
Coffee Break
10:45 -12:45 p.m.
"The Oil Outlook Beyond the 1980's"
Presentation:
Comments:
Moderator:
Lunch
12:45 - 1:45 p.m.
1:45 - 5:00 p.m.
(Pink)
"Energy Legislative and Regulatory Agendas:
The Next Two Years"
Presentation:
Comments:
Evening Free
Henry Jacoby
John V. Mitchell
Loren Cox
Loren Cox
Steven Hickok
Frank Potter
Walter Schroeder
Jan Vlcek
D-2
Tuesday, November 18
Breakfast
7:30 - 8:15 a.m.
8:15 -12:00 noon
(Gt.een)
"Synfuels:
Prospects and Problems"
Presentation:
Comments:
Moderator:
12:00 -12:45 p.m.
Arthur Wright
David White
Jim Harlan
Daniel Luecke
Loren Cox
Luncheon and Departure
List of Participants in Back (CnaAwY)
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D-3
CEPR Meeting November 16-18, 1980
PARTICIPANTS
Morris A. Adelman
Professor of Economics
Massachusetts Institute of Technology
Richard Alben
Manager, Technology Evaluation Operation
Corporate Research & Development
General Electric Company
David J. Atton
Manager, Supply and Transportation
Department
Manager, Policy & Planning
The Standard Oil Company
Eric M. Bodow
Manager of Economic Planning
Chem Systems Incorporated
Joan T. Bok
Vice Chairman
New England Electric System
James B. Borden
Economics and Policy Manager
Energy.and Materials Department
E.I. DuPont de Nemours & Company
Lawrence Burge
Project Manager of Synfuels
E.G.&G., Incorporated
David H. Burns
Special Assistant
International Energy Policy
Department of State
John G.L. Cabot
Senior Vice President
Cabot Corporation
Jacqueline Carson
Sponsored Research Technical Staff
Energy Laboratory
Massachusetts Institute of Technology
Nazli Choucri
Professor of Political Science
Massachusetts Institute of Technology
Maudine Cooper
Assistant Vice President for Public Policy
National Urban League
Loren C. Cox
Director
Center for Energy Policy Research
Energy Laboratory
Massachusetts Institute of Technology
William Cummings
Assistant Postmaster General
United States Postal Service
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John E. Deegan, Jr.
Vice President
Consolidated Edison of New York
Fred J. DiLisio
Special Assistant for Energy Conservation
United States Postal Service
Maurice C. Ernst
Director, Economic Research
Central Intelligence Agency
Anna Lou Fletcher
Staff Economist of Synfuels
E.G.&G., Incorporated
F. Harlan Flint
Director, Policy and Planning
Government and Public Affairs
The Standard Oil Company
Gerald R. Fox
Manager, Energy Systems Evaluation
General Electric Company
Hiroshi Fukuda
Counsellor of the Japanese Embassy
Washington, D.C.
William J. Gallagher
Purchasing and Materials
Caterpillar Tractor Company
Lawrence J. Goldstein
Chief Economist
Petroleum Industrial Research
Foundation, Inc.
Richard L. Gordon
Professor of Mineral Economics
Pennsylvania State University
Visiting Economist
Massachusetts Institute of Technology
Barnet Groten
Director, Research and Technology
Texas Eastern Transmission Corporation
Mariano Gurfinkel
Senior Advisor
Commercial Department
Petroleos de Venezuela Corporation
Janes W. Hanson
Chief Economist
Corporate Planning Department
Exxon Corporation
James Harlan
Policy Analyst
Office of Policy and Evaluation
Department of Energy
Curt Hessler
Assistant Secretary
(Economic Policy)
Treasury Department
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Steven G. Hickok
Minority Staff Director
Senate Energy Committee
Robert Higgins
Executive Director
John A. Hartford Foundation, Inc.
Takeo Iguchi
Consul-General of Japan
Boston,. Massachusetts
Henry D. Jacoby
Energy Laboratory
Professor, Sloan School of Management
Massachusetts Institute of Technology
Lionel S. Johns
Assistant Director
Office of Technology Assessment
Ethan Kapstein
Energy Education Director
Massachusetts Audubon Society
Michael Karsky
Direction de la Recherche
Scientifique et Technique
Societe Nationale Elf Acquitaine
Ike C. Kerridge,
Jr.
Vice President
Stockholder Relations & Economist
Hughes Tool Company
William C. King
Director of Policy Analysis
Gulf Oil Corporation
Zvi Livne
Visiting Scientist
Energy Laboratory
Massachusetts Institute of Technology
Geoffrey Lubbock
Senior Business Analyst
Energy Group
Cabot Corporation
Daniel F. Luecke
Staff Scientist
Environmental Defense Fund
Michael C. Lynch
Research Specialist
Energy Laboratory
Massachusetts Institute of Technology
Jacques Maroni
Energy Planning Director
Ford Motor Company
Muriel McCrossen
Associate Economist
Research Staff
General Electric Company
D-6
James A. McNamara
Assistant U.S. Trade Representative
for Energy Policy
Executive Office of the President
John E. Mitchell
Director of Research
Caterpillar Tractor Company
John V. Mitchell
Head, Policy Review Unit
British Petroleum, London
W. David Montgomery
Deputy Assistant Secretary for
Policy and Evaluation
Department of Energy
Thomas L. Neff
Principal Research Scientist
Manager, International Energy
Studies Program
Energy Laboratory
Massachusetts Institute of Technology
J. Madison Nelson
Development Manager
Energy Materials Department
E.I. DuPont de Nemours & Company
Guy W. Nichols
President and Chief Executive Officer
New England Electric System
Charles C. Nicholson
Vice President
British Petroleum North America, Inc.
Katsumi Oda
Vice-Counsul of Japan
Boston, Massachusetts
John L. Olsen
Senior Vice President
Government and Industry Affairs
Sun Company
James L. Paddock
Research Associate and Lecturer
Energy Laboratory
Massachusetts Institute of Technology
Len V. Parent
Planning Manager of Corporate Planning
Panhandle Eastern Pipe Line Company
Alirio Parra
Director, Commercial Department
Petroleos de Venezuela Corporation
Donald H. Peters
Corporate Director of Information Systems
E.G.&G., Incorporated
D-7
Frank Potter
Staff Director
Subcommittee on Energy and Power
House Committee on Interstate and
Foreign Conmmerce
Margaret Power
Minority Counsel
Subcommittee on Energy
Senate Government Affairs Committee
Linda Rathbun
Manager, Market Research
Rocky Mountain Energy Company
Tom G. Richards
Project Engineer for Research
Caterpillar Tractor Company
John W. Rohrer
Director of Engineering
Wheelabrator Frye, Inc.
Brice A. Sachs
Executive Vice President
Exxon International
Anthony Scanlon
Economics Advisor
British Petroleum, London
Raymond Scheppach
Assistant Director
Congressional Budget Office
Walter Schroeder
Director
Office of Regulatory Analysis
Federal Energy Regulatory Commission
Jack F. Shaner
Economist
Caterpillar Tractor Company
Gordon Shearer
Assistant to the Manager
Exploration and Production
Oil and Gas Division
Cabot Corporation
Allen Sheldon
Vice President, Environment and
Energy Resources
Alcoa Corporation
Melvin K. Simmons
Energy Analyst
General Electric Company
J. Edward Smith
Economist
Energy Analysis Operation
General Electric Company
D-8
Kenneth A. Smith
Associate Provost
Massachusetts Institute of Technology
John S. Sorice
Energy Planning & Mineral Resources
Department
Olin Corporation
David Strom
Associate
The Conservation Foundation
Michael Telson
Senior Energy Analyst
House Budget Committee
Jan B. Vlcek
Attorney at Law
Gardner, Carton & Douglas
Geoffrey L. Ward
Sponsored Research Technical Staff
Energy Laboratory
Massachusetts Institute of Technology
Malcolm A. Weiss
Deputy Director
Energy Laboratory
Massachusetts Institute of Technology
David C. White
Director, Energy Laboratory
Massachusetts Institute of Technology
James C. Wilson
President
Rocky Mountain Energy Company
David 0. Wood
Associate Director
Energy Laboratory
Massachusetts Institute of Technology
Arthur W. Wright
Economist
Professor & Head of Economics Department
University of Connecticut
Visiting Economist
Massachusetts Institute of Technology
D-9
AGENDA
CENTER ASSOCIATES PLANNING MEETING
May 20-21, 1981
Hyatt Regency, Cambridge
May 20, 1981 (Wednesday)
6:00 - 7:00 p.m.
Cocktails
*William Dawes Room
7:00 -
8:00 p.m.
8:00 - 10:00 p.m.
May 21,
Dinner
*Thomas Paine Room
"The Congressional Energy Agenda - 97th Congress"
e Frank Potter, House Committee on Energy &
Commerce
*Thomas Paine Room
1981 (Thursday)_
7:00 - 8:00 a.m.
Breakfast
*Empress Room (14th Floor)
8:00 - 9:30 a.m.
Review of CEPR Sponsored Research
*Thomas Paine Room
9:30 - 10:00 a.m.
Coffee Break
10:00 - 12:00 Noon
Panel Discussion Groups on Two Areas of CEPR
Focus
* International Energy Markets
* Domestic Energy Policy, especially
Synthetic Fuels
12:00 - 1:00 p.m.
Lunch
*Empress Room (14th Floor)
1:00 - 2:15 p.m.
Reconvene as One Group to Report on Morning
Discussion Groups
*Thomas Paine Room
2:15 - 3:30 p.m.
Discussion of Changed Policy Landscape
3:30 p.m.
Adjourn
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D-10
CEPR Meetings May 20-21, 1981
PARTICIPANTS
Morris A. Adelman
Professor of Economics
Massachusetts Institute of Technology
Arnold B. Baker
Senior Consultant
Policy Analysis & Forecasting
Atlantic Richfield Company
Curt Biren
Program Officer
The John A. Hartford Foundation, Inc.
James B. Borden
Economics and Policy Manager
Energy & Materials Department
E.I. DuPont de Nemours & Company
Charles G. Bottomley
Director, Feed Stocks Research
E.I. DuPont de Nemours & Company
Edgar N. Brightbill
Director of Planning and Development
Division
E.I. DuPont de Nemours & Company
John G.L. Cabot
Senior Vice President
Cabot Corporation
C. Napier Collyns
Vice President
Strategic Planning & Public Affairs
Scallop Corporation
Loren C. Cox
Director
Center for Energy Policy Research
Massachusetts Institute of Technology
William Cummings
Assistant Postmaster General
United States Postal Service
John E. Deegan, Jr.
Vice President
Consolidated Edison Company of
New York, Inc.
E. D. Michael Eades
Technical & Research Liaison Director
ICI Americas, Inc.
Theodore R. Eck
Chief Economist
Standard Oil Company (Indiana)
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D-11
Peter Ellis
Research Assistant
Sloan School of Management
Massachusetts Institute of Technology
Kazuya Fujime
Institute of Energy Economics
Tokyo, Japan
Visiting Scientist
Energy Laboratory
Massachusetts Institute of Technology
William J. Gallagher
Purchasing and Materials
Caterpillar Tractor Company
Richard L. Gordon
Pennsylvania State University
Visiting Economist
Center for Energy Policy Research
Massachusetts Institute of Technology
Mariano Gurfinkel
Senior Advisor
Commercial & Suministro Department
Petroleos de Venezuela S.A.
James W. Hanson
Chief Economist
Corporate Planning Department
Exxon Corporation
Robert Higgins
Executive Director
The John A. Hartford Foundation, Inc.
Anton A. Holscher
Planning and Administration
Shell Internationale Research
Maatschappij B.V.
Dennis J. Ives
Deputy Secretary
Department of National Development
and Energy
Government of Australia
Henry D. Jacoby
Professor, Sloan School of Management
Associate Director, Energy Laboratory
Massachusetts Institute of Technology
Paul L. Joskow
Professor of Economics
Massachusetts Institute of Technology
Ethan Kapstein
Energy Education Director
Massachusetts Audubon Society
William C. King
Vice President of Corporate Planning
Gulf Oil Corporation
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D-12
Yoshiaki Kotaki
Consul of Japan
Boston, Massachusetts
Zvi Livne
Visiting Scientist
Center for Lnergy Policy Research
Massachusetts Institute of Technology
Daniel F. Luecke
Staff Scientist
Environmental Defense Fund
Daniel Luria
Research Associate
Research Department
United Auto Workers
Jacques Maroni
Energy Planning Director
Ford Motor Company
Robert McCutchen
Division Manager
Research Department
Caterpillar Tractor Company
Frank Murphy
Manager of Economic Research
General Electric Company
Thomas L. Neff
Program Manager, International Energy
Studies Program
Energy Laboratory
Massachusetts Institute of Technology
Charles C. Nicholson
Vice President
British Petroleum N.A., Inc.
James L. Paddock
Research Associate and Lecturer
Massachusetts Institute of Technology
Len V. Parent
Planning Manager of Corporate Planning
Panhandle Eastern Pipe Line Company
Donald H. Peters
Corporate Director of Information
Systems
EG & G, Inc.
Frank M. Potter, Jr.
Chief Counsel
House Energy & Commerce Committee
U.S. House of Representatives
Dorothy K. Powers
Energy Chairperson
League of Women Voters of the
United States
Linda Rathbun
Manager, Market Research
Rocky Mountain EInergy Company
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Thomas J. Richards
Staff Engineer
Caterpillar Tractor Company
John W. Rohrer
Director of Engineering
Wheel abrator-Frye Inc.
Cornelius Shields
Vice President, Public Policy
Sun Company
Horst Siebert
University of Mannheim
Visiting Economist
Center for Energy Policy Research
Massachusetts Institute of Technology
Jack F. Shaner
Economist
Caterpillar Tractor Company
Craig Tedmon
Staff Executive
Power Systems, Technology Operation
General Electric Company
Malcolm A. Weiss
Deputy Director, Energy Laboratory
Massachusetts Institute of Technology
David C. White
Director, Energy Laboratory
Massachusetts Institute of Technology
David 0. Wood
Program Director
Energy Markets, Pricing and Regulation
Energy Laboratory
Massachusetts Institute of Technology
Arthur W. Wright
University of Connecticut
Visiting Economist
Center for Energy Policy Research
Massachusetts Institute of Technology